By Karim Rahemtulla, Investment Director
Oil & Energy Daily
Oil & Energy Daily
Strait of Malacca
Back in March, we talked about Myanmar – and the massive investment opportunity taking shape there.
I know it sounds like an obscure country with limited prospects, but I assure you, it’s not. And I’ll have even more information for you once I get back from the Myanmar 2013 Investment Summit in Hong Kong.
But today, I don’t just want to talk about Myanmar. I want to talk about another regional economic power: Malaysia.
Both of these countries are vital to global trade, and their respective roles are becoming increasingly entangled.
You see, with its positioning near the South China Sea, Malaysia is a vital trade hub and home to one of the world’s most crucial shipping lanes – the Strait of Malacca.
We’ve talked about choke points before – namely the Suez Canal and Strait of Hormuz.
Well, the Strait of Malacca, which runs a long, narrow distance between Malaysia and Indonesia, is in that category of importance.
More than 60,000 ships carrying 40% of the world’s cargo pass through the strait each year. Merchandise going from China to Europe crosses paths with supertankers loaded with oil headed from the Middle East to China and Japan.
Indeed, about 15 million barrels of oil – including 80% of China’s crude imports – pass through the Strait of Malacca each day, compared to roughly 17 million barrels for the Strait of Hormuz. Yet, while the Strait of Hormuz is 27 miles wide at its narrowest point, the Strait of Malacca forms a bottleneck that’s less than two miles across.
The strait is equally vital to Japan, as it’s a passage for 90% of that country’s oil imports.
Basically, the world’s second- and third-largest economies would come to a halt if the strait were closed down for any reason. Fortunately, the Strait of Malacca is surrounded by three moderate countries: Malaysia, Indonesia and Singapore.
Malaysia and Indonesia are majority Muslim countries, and they don’t have a history of adversity when it comes to trade or foreign relations. Instead, the major incidents that have hamstrung traffic in the strait involve piracy. For that reason, each country maintains an active navy or coast guard.
China-Myanmar Oil Pipeline
Still, shipping through the strait can be expensive, which brings us back to Myanmar. Indeed, China incurs more expenses shipping through the Strait of Malacca than any other country. But there’s a way that those expenses can be avoided.
Instead of shipping goods through the strait, China could export its goods out of Myanmar – its neighbor to the southwest, which sits on the Bay of Bengal near India. Moving goods out of Myanmar would bypass the Strait of Malacca entirely.
Of course, this idea isn’t unique to China. Japan had the same idea. Now, both countries are pumping hundreds of millions of dollars into Myanmar to secure its strategic ports on the Indian Ocean and cut down on transport costs.
But that’s not all. In addition to being a key transportation hub, Myanmar also boasts the world’s ninth largest reserves of natural gas. Obviously, both Japan and China are interested in those, as well.
That’s why Myanmar is all the rage right now for frontier investing. It’s resource-rich, strategically important and relatively underdeveloped.
Now, as we’ve seen in the past, the boom and bust cycles for emerging markets can be both euphoric and brutal. But that’s why I’m here to get a firsthand look myself.
I’ll have more information for you after the conference.
And “the chase” continues.
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